Elaine Consulting incorporated on February 1, current year. Thecompany engaged in the following transactions during its firstmonth of operations.
Feb. 1 Issued capital stock inexchange for $800,000 cash. Feb. 5 Borrowed $100,000 from thebank by issuing a note payable. Feb. 8 Purchased land, building, andoffice equipment for $750,000. The value of the land was $150,000,the value of the building was $540,000, and the value of the officeequipment was $60,000. The company paid $200,000 cash and issued anote payable for the balance. Feb. 11 Purchased office supplies for$800 on account. The supplies will last for several months. Feb. 14 Paid the local newspaper $500for a full-page advertisement. The ad will appear in print onFebruary 18. Feb. 20 Several of the inkjet printercartridges that Elaine purchased on February 11 were defective. Thecartridges were returned and the office supply store reducedElaineâs outstanding balance by $200. Feb. 22 Performed consulting servicesfor $14,000 cash. Feb. 24 Billed clients $16,000. Feb. 25 Paid salaries of $12,000. Feb. 28 Paid the entire outstandingbalance owed for office supplies purchased on February 11.
A partial list of the account titles used by the companyincludes the following
Cash Notes Payable Accounts Receivable Accounts Payable Office Supplies Capital Stock Land Client Service Revenue Building Advertising Expense Office Equipment Salaries Expense
a. Prepare journal entries for the abovetransactions.
b. Post each entry to the appropriate ledgeraccounts.
c. Prepare a trial balance dated February 28,current year. Assume accounts with zero balances are not includedin the trial balance.
Elaine Consulting incorporated on February 1, current year. Thecompany engaged in the following transactions during its firstmonth of operations.
| Feb. | 1 | Issued capital stock inexchange for $800,000 cash. | |
| Feb. | 5 | Borrowed $100,000 from thebank by issuing a note payable. | |
| Feb. | 8 | Purchased land, building, andoffice equipment for $750,000. The value of the land was $150,000,the value of the building was $540,000, and the value of the officeequipment was $60,000. The company paid $200,000 cash and issued anote payable for the balance. | |
| Feb. | 11 | Purchased office supplies for$800 on account. The supplies will last for several months. | |
| Feb. | 14 | Paid the local newspaper $500for a full-page advertisement. The ad will appear in print onFebruary 18. | |
| Feb. | 20 | Several of the inkjet printercartridges that Elaine purchased on February 11 were defective. Thecartridges were returned and the office supply store reducedElaineâs outstanding balance by $200. | |
| Feb. | 22 | Performed consulting servicesfor $14,000 cash. | |
| Feb. | 24 | Billed clients $16,000. | |
| Feb. | 25 | Paid salaries of $12,000. | |
| Feb. | 28 | Paid the entire outstandingbalance owed for office supplies purchased on February 11. |
A partial list of the account titles used by the companyincludes the following
| Cash | Notes Payable |
| Accounts Receivable | Accounts Payable |
| Office Supplies | Capital Stock |
| Land | Client Service Revenue |
| Building | Advertising Expense |
| Office Equipment | Salaries Expense |
a. Prepare journal entries for the abovetransactions.
b. Post each entry to the appropriate ledgeraccounts.
c. Prepare a trial balance dated February 28,current year. Assume accounts with zero balances are not includedin the trial balance.
Related questions
| Byte of Accounting, Inc. Create a generalJournal | |
| Transaction | Description of transaction |
| 01. | June 1: Byte of Accounting, Inc. issued2,580 shares of its common stock to Jeremy after $26,780 in cashand computer equipment with a fair market value of $40,300 werereceived. |
| 02. | June 1: Byte of Accounting, Inc. issued1,968 shares of its common stock after acquiring from Courtney$35,100 in cash, computer equipment with a fair market value of$15,080 and office equipment with a fair value of $988. |
| 03. | June 1: Byte of Accounting,Inc. acquired $72,800 in cash from Kai and issued 2,800 shares ofits common stock. |
| 04. | June 2: A down payment of $33,000 in cashwas made on additional computer equipment that was purchased for$165,000. A five-year note was executed by Byte for thebalance. |
| 05. | June 4: Additional office equipmentcosting $700 was purchased on credit from Discount ComputerCorporation. |
| 06. | June 8: Unsatisfactory office equipmentcosting $140 was returned to Discount Computer for credit to beapplied against the outstanding balance owed by Byte. |
| 07. | June 10: Byte paid $25,250 on the balanceit owed on the June 2 purchase of computer equipment. |
| 08. | June 14: A one-year insurance policycovering its computer equipment was purchased by Byte for $5,136 incash. The effective date of the policy was June 16. |
| 09. | June 16: Computer consultation revenue of$6,000 was received. |
| 10. | June 16: Byte purchased a building and theland it is on for $125,000, to house its repair facilities and tostore computer equipment. The lot on which the building is locatedis valued at $20,000. The balance of the cost is to be allocated tothe building. Byte made a cash down payment of $12,500 and executeda mortgage for the balance. The mortgage is payable in eight equalannual installments beginning July 1. |
| 11. | June 17: Cash of $7,600 was paid for rentfor June, July, August and September. Put the total amount into thePrepaid Rent account. |
| 12. | June 17: Received a bill of $375 from thelocal newspaper for advertising. |
| 13. | June 21: Billed various miscellaneouslocal customers $4,600 for consulting services performed. |
| 14. | June 21: A fax machine for the office waspurchased for $775 cash. |
| 15. | June 21: Accounts payable in the amount of$560 were paid. |
| 16. | June 22: Paid the advertising bill thatwas received on June 17. |
| 17. | June 22: Received a bill for $1,090 fromComputer Parts and Repair Co. for repairs to the computerequipment. |
| 18. | June 22: Paid salaries of $985 toequipment operators for the week ending June 18. |
| 19. | June 23: Cash in the amount of $3,685 wasreceived on billings. |
| 20. | June 23: Purchased office supplies for$530 on credit. Record the purchase as an increase to theassets. |
| 21. | June 28: Billed $5,280 to miscellaneouscustomers for services performed to June 25. |
| 22. | June 29: Cash in the amount of $5,001 wasreceived for billings. |
| 23. | June 29: Paid the bill received on June22, from Computer Parts and Repairs Co. |
| 24. | June 29: Paid salaries of $985 toequipment operators for the week ending June 25. |
| 25. | June 30: Received a bill for the amount of$815 from O & G Oil and Gas Co. |
| 26. | June 30: Paid a cash dividend of $0.15 pershare to the three shareholders of Byte. [IMPORTANT NOTE: Thenumber of shares of capital stock outstanding can be determinedfrom the first three transactions.] |
| Adjusting Entries - Round to two decimalplaces. | |
| 27. | The rent payment made on June 17 was forJune, July, August and September. Expense the amount associatedwith one month's rent. |
| 28. | A physical inventory showed that only$214.00 worth of office supplies remained on hand as of June30. |
| 29. | The annual interest rate on the mortgagepayable was 8.25 percent. Interest expense for one-half monthshould be computed because the building and land were purchased andthe liability incurred on June 16. |
| 30. | Information relating to the prepaidinsurance may be obtained from the transaction recorded on June 14.Expense the amount associated with one half month's insurance. |
| 31. | A review of Byteâs job worksheets showthat there are unbilled revenues in the amount of $5,500 for theperiod of June 28-30. |
| 32. | The fixed assets have estimated usefullives as follows: |
| Building - 31.5 years | |
| Computer Equipment - 5.0 years | |
| Office Equipment - 7.0 years | |
| Use the straight-line method ofdepreciation. Management has decided that assets purchased during amonth are treated as if purchased on the first day of the month.The buildingâs scrap value is $500. The office equipment has ascrap value of $350. The computer equipment has no scrap value.Calculate the depreciation for one month. | |
| 33. | A review of the payroll records show thatunpaid salaries in the amount of $591 are owed by Byte for threedays, June 28 - 30. |
| 34. | The note payable relating to the June 2,and 10 transactions is a five-year note, with interest at the rateof 12 percent annually. Interest expense should be computed basedon a 360 day year. |
| [IMPORTANT NOTE: The original note on thecomputer equipment purchased on June 2 was $132,000. OnJune 10, eight days later, $25,250 was repaid. Interest expensemust be | |
| calculated on the $132,000 for eight days.In addition, interest expense on the $106,750 balance of the loan($132,000 less $25,250 = $106,750) must be calculated for the 20days remaining in the month of June.] | |
| 35. | Income taxes are to be computed at therate of 25 percent of net income before taxes. |
| [IMPORTANT NOTE: Since the income taxesare a percent of the net income you will want to prepare the IncomeStatements through the Net Income Before Tax line. The worksheetcontains all of the accounts and their balances which you can thentransfer to the appropriate financial statement.] | |
| Closing Entries | |
| 36. | Close the revenue accounts. |
| 37. | Close the expense accounts. |
| 38. | Close the income summary account. |
| 39. | Close the dividends account. |
Complex Balance Sheet
Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.
| Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016 | ||||
| Assets | Liabilities and Shareholders' Equity | |||
| Cash | $225,000 | Accounts payable | $133,800 | |
| Accounts receivable (net) | 345,700 | Mortgage payable | 900,000 | |
| Inventories | 560,000 | Notes payable | 500,000 | |
| Prepaid income taxes | 40,000 | Lawsuit liability | 80,000 | |
| Investments | 57,700 | Income taxes payable | 61,200 | |
| Land | 450,000 | Deferred tax liability | 28,000 | |
| Building | 1,750,000 | Accumulated depreciation | 420,000 | |
| Machinery and equipment | 1,964,000 | Total Liabilities | $2,123,000 | |
| Goodwill | 37,000 | Common stock, $50 par; 40,000 shares issued | $2,231,000 | |
| Total Assets | $5,429,400 | Retained earnings | 1,075,400 | |
| Total Shareholders' Equity | $3,306,400 | |||
| Total Liabilities and Shareholders' Equity | $5,429,400 | |||
Your company has been engaged to perform an audit, during whichyou discover the following information:
Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.
Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.
During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.
Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.
On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.
The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.
The lawsuit liability will be paid in 2017.
Of the total deferred tax liability, $5,000 is considered acurrent liability.
The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.
The company was authorized to issue 100,000 shares of $50 parvalue common stock.
Required:
Prepare a corrected classified balance sheet as of December 31,2016.
| Zeus Manufacturing Corporation Balance Sheet December 31, 2016 | |||
| Assets | |||
| Current Assets: | |||
| Cash | $ | ||
| Accounts receivable (net) | |||
| Inventories | |||
| Total current assets | $ | ||
| Long-Term investment, at fair value | |||
| Property, Plant, and Equipment (at cost): | |||
| Land | $ | ||
| Building | $ | ||
| Machinery and equipment | |||
| Total | |||
| Less: Accumulated depreciation | |||
| Total property, plant, and equipment | |||
| Intangible Asset: | |||
| Goodwill | |||
| Other Assets: | |||
| Cash restricted for building purposes | $ | ||
| Officer's note receivable | |||
| Land held for future building site | |||
| Total Assets | $ | ||
| Liabilities | |||
| Current Liabilities: | |||
| Accounts payable | $ | ||
| Current installments of long-term debt | |||
| Lawsuit liability | |||
| Income taxes payable | |||
| Deferred tax liability | |||
| Total current liabilities | $ | ||
| Long-Term Debt: | |||
| Mortgage payable | $ | ||
| Notes payable | |||
| Deferred tax liability | |||
| Total long-term debt | |||
| Total Liabilities | $ | ||
| Shareholders' Equity | |||
| Contributed Capital: | |||
| Common stock, $50 par value | $ | ||
| Additional paid-in capital | |||
| Total paid-in capital | $ | ||
| Retained earnings | |||
| Accumulated Other Comprehensive Loss: | |||
| Unrealized decrease in value of long-term investment | |||
| Total | $ | ||
| Less: Cost of treasury stock | |||
| Total Shareholders' Equity | |||
| Total Liabilities and Shareholders' Equity | $ | ||
