Dottic Digs, Ine (B) DD-Case Dottie inherits $25,000 from an uncle. She decides to start a women's clothing business. Dottie forms an Illinois Corporation (C) with the name Dottie Digss, Inc. ("DD") She purchases 5,000 shares of common stock, par valuc of $10 per share, for $50,000 using her nherilance and savings. She persuades her father and the owner-manager of a local busincss to serve with her as the three directors without compensation The boaid elects Dottie as President at an annual salary of $45,000. DD rents space in a strip mall for 5% of net sales plus $1,250 per montb for utilities During the first ycar ended March 31, 1993, Dottie keeps all financial records herself. Her CPA provided help as needed. During the year, DD borrowed $50,000 at 10% from Dottie's father. Sales were better han she expocted, but Dottie is unhappy that the bank account, which started with her $50,000 investment, is now depleted to $5,590. She assumes that the loss for the first year equals the decrease in cash of $44,410. The general ledger accounts that follow are in balance, but Dottie does not know how to prepare financial statements or how to interpret them Only cash receipts and disbursements have been posted to reflect the March 31, 1993 balances. Thesc data are given in DD-1 Exlibit I The following items are to be recorded by joumal entries: $103,978 36,805 193,490 6,700 6,500 4,500 Unpaid invoices for merchandise purchases Sales on account, not yet collected Ending inventory, lower of cost or market Estinated ycar's wear on Prop, Plant, & Equip Insurance premiums paid that relate to next year Corp income tax liability for year nded 3.31-93 Accrued expenses: 1,975 4,975 5,000 Payroll taxes due but not paid Rent due but unpaid Sales salaries since last payroll Assignment (I) Prepare year-end journal entries for the above items to adjust account balances to accrual basis. (2) Prepare Balance Sheet as of March 31, 1993 and Income Statement for the year then ended from the adjusted balances. (3) Why do you think DD performance (is) or (is not) acceptable for this first year? DD-1 Exhibit I Cash Receipts and Disbursemments balances as of March 31, 1993 Debit Credit Advertising $15,043 5,590 Cash $50,000 10,725 31,850 Common Stock Equip Purchase Contract Payable - ST 9% Equip Purchase Contract Payable - LT 9% Executive compensation 45,000 2,805 Income tax expense 2,825 Income tax withheld from payroll Insurance expense 13,982 6,200 469,088 interest expense Merchandise purchases Note Payable-- Father 10 Other expenses 50,000 5,450 6,725 5,000 54,600 26,137 Payroll taxes Professional fees Property, Plant, and Equipiment Rent 585,445 Sales Sales Salaries 50,250 9,975 15,000 Supplies Utlities
