Income Statement and Balance Sheet Preparation

Resource:ABC Financial and Supplemental Data Excelspreadsheets, and footnotes from the Week 2 Learning Team assignment

Calculatethe deferred tax asset or liability of an error for the scenario provided.

Calculateinventory calculation average cost, first-in-first-out (FIFO), and last-in-first-out (LIFO). Record the calculated average cost in the financial statement.

Calculatethe straight-line depreciation.

Createan income statement using the results calculated above.

Createa balance sheet using the results calculated above. Insert your Learning Team's footnotes into the balance sheet and income statement. Identify in the footnotes the depreciation methods being used for the fixed assets. Also identify the footnotes the methodology used to determine deferred taxes.

Submitthe Income Statement and Balance Sheet in a MicrosoftExcelspreadsheet that includes the required calculations.

2013 Cash and Cash Equivalents Receivables, net Inventory Other Current Assets Property and Equipment, at cost Accumulated Depreciation and Amortization Goodwill Deferred Tax Asset Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Long-Term Debt, excluding current installments Other Long-Term Liabilities Deferred Tax Liability Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Common stock Net Sales Cost of Sales Selling, General and Administrative Depreciation and Amortization Interest and Investment Income Interest Expense Provision for Income Taxes Foreign Currency Translation Adjustments Cash Flow Hedges, net of tax Other Comprehensive Income Dividends Tax rate Shares Issued Under Employee Stock Plans Tax Effect of Stock-Based Compensation Restricted Stock Repurchases of Common Stock 4,960.00 1,398.00 2012 (12.00) (10.00) (2,243.00) 40% 103.00 123.00 228.00 (8,500.00) 2,494.00 1,413.00 11,512.00 900.00 38,491.00 (17,473.00) 1,046.00 473.00 5,192.00 1,200.00 472.00 1,262.00 (107.00) (783.00) 1,794.00 9,475.00 2,029.00 545.00 7,948.00 20,038.00 397.00 (10,694.00) 88.00 74,754.00 48,912.00 16,508.00 1,568.00 (87.00) 632.00 (2,686.00) 100.00 5.00 (1.00) (1,743.00) 40% 678.00 82.00 222.00 (4,000.00) 4,523.00 6,739.00 (1,332.00) (987.00) (1,028.00) (275.00) (12.00) (1,389.00) (206.00) 88.00 5,222.00 (1,289.00) (8,546.00) 241.00 (2,243.00) (37.00) 4,356.00 6,038.00 (1,276.00) (905.00) (1,121.00) (204.00) (10.00) (1,312.00) (170.00) 50.00 (32.00) (3,984.00) 784.00 (1,743.00) (59.00) 895.00 36,033.00 (15,684.00) 1,289.00 88.00 5,797.00 1,428.00 396.00 1,337.00 12.00 33.00 1,746.00 14,691.00 2,042.00 8,402.00 23,180.00 46.00 (19,194.00) 88.00 78,812.00 16,597.00 1,595.00 (12.00) 711.00 (3,082.00) Additional Info: Cash Sales Collections on Receivables Purchases Wages Payments to Suppliers Tax Payments Interest payments Capital Expenditures Payments for Businesses Acquired Proceeds from Sales of Property and Equipment Proceeds from Long-Term Borrowings Repayments of Long-Term Debt Repurchases of Common Stock Proceeds from Sales of Common Stock Cash Dividends Paid to Stockholders Other Financing Activities (A) Depreciation Expense Using Straight-Line MethodABC Company has the following assets acquired on January 1, 2013 requiring depreciation calculation: Asset Cost 660 2,250 Land at a cost of $2,250,000 Machinery and Equipment with 20 year life at a cost of 79,000. Truck with a life of 7 years at a cost of $42,000 Life 79 42 3,031 Plant with 30 year life at a cost of $660,000 Annual Dep. Expense 20 30 7 - (B) Inventory CalculationA physical inventory on December 31, 2013, shows 810 units on hand. Calculate Cost of Goods Sold (COGS) using average cost. Purchases Beginning Inventory January 5, 2013 March 25, 2013 June 8, 2013 September 15, 2013 December 15, 2013 (C ) Error Corrections(1) An error was discovered during 2013 relating to the understatement of depreciation expense in 2011 resulting in a Prior Period Adjustment of $1,505 before taxes. (2) ABC Company changed its method of valuing inventory during 2013. The cumulative increase in income from the change in inventory methods was $1,285 before taxes. Units 800 950 950 745 625 505 4,575 Cost 14.39 13.46 12.81 13.65 13.25 14.97 Total 11,512 12,787 12,170 10,169 8,281 7,560 50,967 Purchase Purchase Purchase Purchase Purchase Total Purchases Trial Balance (Balance Sheet Accounts Only) Cash and Cash Equivalents Receivables, net Inventory Inventory Correction Other Current Assets Property and Equipment, at cost Accumulated Depreciation and Amortization Accumulation Depreciation Correction Goodwill Deferred Tax Asset Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Long-Term Debt, excluding current installments Other Long-Term Liabilities Deferred Tax Liability Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Common stock Total Data Needed For Preparation of Week 2 Income Statement Net Sales Cost of Sales Selling, General and Administrative Depreciation and Amortization Interest and Investment Income Interest Expense Provision for Income Taxes Totals Amounts Adjusting Entries Debit Credit Plug Adjusted Trial Balance Debit Credit 4,960.00 1,398.00 A B C2 895.00 36,033.00 (15,684.00) A A C1 1,289.00 88.00 (5,797.00) (1,428.00) (396.00) (1,337.00) (12.00) (33.00) (1,746.00) (14,691.00) (2,042.00) C1 4,960 1,398 0 0 895 36,033 15,684.00 1,289 88 (46.00) (19,194.00) (88.00) (49,417.88) C1 C2 46.00 19,194 0 15,684.00 28,979.00 5,797.00 1,428.00 396.00 1,337.00 12.00 33.00 1,746.00 14,691.00 2,042.00 8,402.00 23,184.88 C2 (8,402.00) (23,184.88) 44,663 Curtis: I inserted this account so you could see the correction going in. You could add this adjusment to the above accumulated depreciation account and it would be ok. 63,857 78,812.00 88.00 74,887 (11,030) Curtis: In a single line general ledger if all the numbers are correct then this total should equal zero. As debits and credits above should equal zero. But per the fact situation we have both journal entries and plug fugures to add in order to get this to zero. 78,812 B 16,597.00 1,595.00 (12.00) 711.00 (3,082.00) A 16,597 1,595 12 - - - 711 3,082 21,985 78,824 0 check figure must equal zero 56,839 The difference between these two numbers is your net income (A) Depreciation Expense Using Straight-Line MethodABC Company has the following assets acquired on January 1, 2013 requiring depreciation calculation: Asset Cost Life Annual Dep. Expense Plant with 30 year life at a cost of $660,000 660 30 22 Land at a cost of $2,250,000 2,250 Machinery and Equipment with 20 year life at a cost of 79,000. 79 20 4 Truck with a life of 7 years at a cost of $42,000 42 7 6 3,031 32 Journal Entry Property and Equipment, at cost 3,031 Cash 3,031 Depreciation and Amortization 32 Accumulated Depreciation and Amortization 32 (B) Inventory CalculationA physical inventory on December 31, 2013, shows 810 units on hand. Calculate Cost of Goods Sold (COGS) using average cost. Purchases Beginning Inventory January 5, 2013 March 25, 2013 June 8, 2013 September 15, 2013 December 15, 2013 Units 800 950 950 745 625 505 4,575 Cost 14.39 13.46 12.81 13.65 13.25 14.97 FIFO 505 14.97 Total 11,512 12,787 12,170 10,169 8,281 7,560 50,967 7,560 Purchase Purchase Purchase Purchase Purchase Total Purchases FIFO 305 810 13.25 14.32 4,041 11,601 LIFO 800 10 810 14.39 13.46 14.38 11,512 135 11,647 810.00 810 810 13.66 14.32 14.38 62,479 COGS as of 12/31/2013 Average Cost FIFO LIFO Dr. Ending Inventory Dr. Cost of Goods Sold Cr. Purchases Cr. Beginning Inventory 11,062 51,417 50,967 11,512 11,062 11,601 11,647 Average Cost Computation of cost o Beginning I 11,512 Purchases 50,967 Good Availa 62,479 Less Ending Inv 11,062 Cost of goo 51,417 (C ) Error Corrections(1) An error was discovered during 2013 relating to the understatement of depreciation expense in 2011 resulting in a Prior Period Adjustment of $1,505 before taxes. (2) ABC Company changed its method of valuing inventory during 2013. The cumulative increase in income from the change in inventory methods was $1,285 before taxes. (1) (2) Dr. Dr. Cr. Retained Earnings $903 Deferred Tax Asset $602 Accumulated Depreciation $1,505 Dr. Cr. Cr. Inventory $1,285 Retained Earnings $771 Deferred Tax Liability $514 903 602 1505 1285 771 514 of goods sold Trial Balance (Balance Sheet Accounts Only) Cash and Cash Equivalents Receivables, net Inventory Inventory Correction Other Current Assets Property and Equipment, at cost Accumulated Depreciation and Amortization Accumulation Depreciation Correction Goodwill Deferred Tax Asset Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Long-Term Debt, excluding current installments Other Long-Term Liabilities Deferred Tax Liability Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Common stock Total Data Needed For Preparation of Week 2 Income Statement Net Sales Cost of Sales Selling, General and Administrative Depreciation and Amortization Interest and Investment Income Interest Expense Provision for Income Taxes Totals Amounts 4,960.00 1,398.00 9,024.00 Plug Adjusting Entries Debit Credit Adjusted Trial Balance Debit Credit 3,031 A 9,024 B 1,285 1,289.00 88.00 (5,797.00) (1,428.00) (396.00) (1,337.00) (12.00) (33.00) (1,746.00) (14,691.00) (2,042.00) C2 3,031 895.00 36,033.00 (15,684.00) A 32 A 1,505 C1 602 C1 1,929 1,398 18,048 1,285 895 39,064 15,715.95 1,505.00 1,289 690 (46.00) (19,194.00) (88.00) (40,393.88) 78,812.00 41,943.00 16,597.00 1,595.00 (12.00) 711.00 (3,082.00) 903 C1 771 C2 46.00 19,194 9,024 17,220.95 47,377.05 5,797.00 1,428.00 396.00 1,337.00 12.00 33.00 1,746.00 14,691.00 2,042.00 514.00 8,402.00 23,052.88 514 C2 (8,402.00) (23,184.88) 64,598 Curtis: I inserted this account so you could see the correction going in. You could add this adjusment to the above accumulated depreciation account and it would be ok. 83,792 88.00 76,806 6,986 Curtis: In a single line general ledger if all the numbers are correct then this total should equal zero. As debits and credits above should equal zero. But per the fact situation we have both journal entries and plug fugures to add in order to get this to zero. 78,812 9,024 B 32 A 9,024 16,597 1,627 12 9,024 5,853 5,853 711 3,082 31,041 78,824 0.05 check figure must equal zero 47,783 The difference between these two numbers is your net income (A) Depreciation Expense Using Straight-Line MethodABC Company has the following assets acquired on January 1, 2013 requiring depreciation calculation: Asset Cost Life Annual Dep. Expense Plant with 30 year life at a cost of $660,000 660 30 22 Land at a cost of $2,250,000 2,250 Machinery and Equipment with 20 year life at a cost of 79,000. 79 20 4 Truck with a life of 7 years at a cost of $42,000 42 7 6 3,031 32 Journal Entry Property and Equipment, at cost 3,031 Cash 3,031 Depreciation and Amortization 32 Accumulated Depreciation and Amortization 32 (B) Inventory CalculationA physical inventory on December 31, 2013, shows 810 units on hand. Calculate Cost of Goods Sold (COGS) using average cost. Purchases Beginning Inventory January 5, 2013 March 25, 2013 June 8, 2013 September 15, 2013 December 15, 2013 Units 800 950 950 745 625 505 4,575 Cost 14.39 13.46 12.81 13.65 13.25 14.97 FIFO 505 14.97 Total 11,512 12,787 12,170 10,169 8,281 7,560 50,967 7,560 Purchase Purchase Purchase Purchase Purchase Total Purchases FIFO 305 810 13.25 14.32 4,041 11,601 LIFO 800 10 810 14.39 13.46 14.38 11,512 135 11,647 810.00 810 810 13.66 14.32 14.38 62,479 COGS as of 12/31/2013 Average Cost FIFO LIFO Dr. Ending Inventory Dr. Cost of Goods Sold Cr. Purchases Cr. Beginning Inventory 11,062 51,417 50,967 11,512 11,062 11,601 11,647 Average Cost Computation of cost o Beginning 11,512 Purchases 50,967 Good Availa 62,479 Less Ending Inv 11,062 Cost of goo 51,417 (C ) Error Corrections(1) An error was discovered during 2013 relating to the understatement of depreciation expense in 2011 resulting in a Prior Period Adjustment of $1,505 before taxes. (2) ABC Company changed its method of valuing inventory during 2013. The cumulative increase in income from the change in inventory methods was $1,285 before taxes. (1) (2) Dr. Dr. Cr. Retained Earnings $903 Deferred Tax Asset $602 Accumulated Depreciation $1,505 Dr. Cr. Cr. Inventory $1,285 Retained Earnings $771 Deferred Tax Liability $514 903 602 1505 1285 771 514 of goods sold Income Statement Net Sales less COGS Gross Profit less Operating Expense Selling, General and Administrative Depreciation and Amortization Total Operating Expense Operating Income add interest and investmnet income Earnings Before Interest and Taxes Interest Expense Earnings Before Taxes Provision for Income Taxes Net Income 78,812 (9,024) 69,788 16,597 1,627 (18,224) 51,564 12 51,576 (711) 50,865 (3,082) 47,783 Balance Sheet Assets Cash and Cash Equivalents Receivables, net Inventory Inventory Correction Other Current Assets Total Current Assets Property and Equipment, at cost less Accumulated Depreciation Goodwill Deferred Tax Asset Total Fixed Assets Total Assets Liabilities and Shareholders Equity Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excluding current install Other Long-Term Liabilities Deferred Tax Liability Total Long Term Liabilities Total Liabilities Shareholders Equity Paid-In Capital Retained Earnings Accumulated Other Comprehensive Incom Treasury Stock Common stock Total SHE 1,929 1,398 18,048 1,285 895 23,555 39,064 (17,221) 1,289 690 23,822 23,822 47,377 5,797 1,428 396 1,337 12 33 1,746 10,749 14,691 2,042 514 17,247 27,996 8,402 30,039 46 (19,194) 88 19,381 47,377 Notes All fixed assets have been recorded using straight line method considering no salvage value. The prior period adjutment were adjusted with 40% tax rate to determine the change in deferred tax assets or dererred tax liability Trial Balance (Balance Sheet Accounts Only) Cash and Cash Equivalents Receivables, net Inventory Inventory Correction Other Current Assets Property and Equipment, at cost Accumulated Depreciation and Amortization Accumulation Depreciation Correction Goodwill Deferred Tax Asset Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Long-Term Debt, excluding current installments Other Long-Term Liabilities Deferred Tax Liability Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Common stock Total Data Needed For Preparation of Week 2 Income Statement Net Sales Cost of Sales Selling, General and Administrative Depreciation and Amortization Interest and Investment Income Interest Expense Provision for Income Taxes Totals Amounts 4,960.00 1,398.00 9,024.00 Plug Adjusting Entries Debit Credit Adjusted Trial Balance Debit Credit 3,031 A 9,024 B 1,285 1,289.00 88.00 (5,797.00) (1,428.00) (396.00) (1,337.00) (12.00) (33.00) (1,746.00) (14,691.00) (2,042.00) C2 3,031 895.00 36,033.00 (15,684.00) A 32 A 1,505 C1 602 C1 1,929 1,398 18,048 1,285 895 39,064 15,715.95 1,505.00 1,289 690 (46.00) (19,194.00) (88.00) (40,393.88) 78,812.00 41,943.00 16,597.00 1,595.00 (12.00) 711.00 (3,082.00) 903 C1 771 C2 46.00 19,194 9,024 17,220.95 47,377.05 5,797.00 1,428.00 396.00 1,337.00 12.00 33.00 1,746.00 14,691.00 2,042.00 514.00 8,402.00 23,052.88 514 C2 (8,402.00) (23,184.88) 64,598 Curtis: I inserted this account so you could see the correction going in. You could add this adjusment to the above accumulated depreciation account and it would be ok. 83,792 88.00 76,806 6,986 Curtis: In a single line general ledger if all the numbers are correct then this total should equal zero. As debits and credits above should equal zero. But per the fact situation we have both journal entries and plug fugures to add in order to get this to zero. 78,812 9,024 B 32 A 9,024 16,597 1,627 12 9,024 5,853 5,853 711 3,082 31,041 78,824 0.05 check figure must equal zero 47,783 The difference between these two numbers is your net income (A) Depreciation Expense Using Straight-Line MethodABC Company has the following assets acquired on January 1, 2013 requiring depreciation calculation: Asset Cost Life Annual Dep. Expense Plant with 30 year life at a cost of $660,000 660 30 22 Land at a cost of $2,250,000 2,250 Machinery and Equipment with 20 year life at a cost of 79,000. 79 20 4 Truck with a life of 7 years at a cost of $42,000 42 7 6 3,031 32 Journal Entry Property and Equipment, at cost 3,031 Cash 3,031 Depreciation and Amortization 32 Accumulated Depreciation and Amortization 32 (B) Inventory CalculationA physical inventory on December 31, 2013, shows 810 units on hand. Calculate Cost of Goods Sold (COGS) using average cost. Purchases Beginning Inventory January 5, 2013 March 25, 2013 June 8, 2013 September 15, 2013 December 15, 2013 Units 800 950 950 745 625 505 4,575 Cost 14.39 13.46 12.81 13.65 13.25 14.97 FIFO 505 14.97 Total 11,512 12,787 12,170 10,169 8,281 7,560 50,967 7,560 Purchase Purchase Purchase Purchase Purchase Total Purchases FIFO 305 810 13.25 14.32 4,041 11,601 LIFO 800 10 810 14.39 13.46 14.38 11,512 135 11,647 810.00 810 810 13.66 14.32 14.38 62,479 COGS as of 12/31/2013 Average Cost FIFO LIFO Dr. Ending Inventory Dr. Cost of Goods Sold Cr. Purchases Cr. Beginning Inventory 11,062 51,417 50,967 11,512 11,062 11,601 11,647 Average Cost Computation of cost o Beginning 11,512 Purchases 50,967 Good Availa 62,479 Less Ending Inv 11,062 Cost of goo 51,417 (C ) Error Corrections(1) An error was discovered during 2013 relating to the understatement of depreciation expense in 2011 resulting in a Prior Period Adjustment of $1,505 before taxes. (2) ABC Company changed its method of valuing inventory during 2013. The cumulative increase in income from the change in inventory methods was $1,285 before taxes. (1) (2) Dr. Dr. Cr. Retained Earnings $903 Deferred Tax Asset $602 Accumulated Depreciation $1,505 Dr. Cr. Cr. Inventory $1,285 Retained Earnings $771 Deferred Tax Liability $514 903 602 1505 1285 771 514 of goods sold Income Statement Net Sales less COGS Gross Profit less Operating Expense Selling, General and Administrative Depreciation and Amortization Total Operating Expense Operating Income add interest and investmnet income Earnings Before Interest and Taxes Interest Expense Earnings Before Taxes Provision for Income Taxes Net Income 78,812 (9,024) 69,788 16,597 1,627 (18,224) 51,564 12 51,576 (711) 50,865 (3,082) 47,783 Balance Sheet Assets Cash and Cash Equivalents Receivables, net Inventory Inventory Correction Other Current Assets Total Current Assets Property and Equipment, at cost less Accumulated Depreciation Goodwill Deferred Tax Asset Total Fixed Assets Total Assets Liabilities and Shareholders Equity Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excluding current install Other Long-Term Liabilities Deferred Tax Liability Total Long Term Liabilities Total Liabilities Shareholders Equity Paid-In Capital Retained Earnings Accumulated Other Comprehensive Incom Treasury Stock Common stock Total SHE 1,929 1,398 18,048 1,285 895 23,555 39,064 (17,221) 1,289 690 23,822 23,822 47,377 5,797 1,428 396 1,337 12 33 1,746 10,749 14,691 2,042 514 17,247 27,996 8,402 30,039 46 (19,194) 88 19,381 47,377 Notes All fixed assets have been recorded using straight line method considering no salvage value. The prior period adjutment were adjusted with 40% tax rate to determine the change in deferred tax assets or dererred tax liability