Problem 1:

Use the financial statement effects template below to undertake transaction analysis for transactions (a) to ( j) incurred during 20Y1 in Janet Inc.:

Balance Sheet

Income Statement

CA

+

NCA

=

Liabilities

+

CC

+

EC

R

-

E

NI

CA = Cash Assets; NCA = Non-cash assets; CC = Contributed capital; EC = Earned capital; R = Revenue; E = Expense; NI = Net income

Instructions for using financial statement effects template:

- Indicate an increase in the account by a + sign and decrease in the account by - sign

- Use appropriate account name in the non-cash assets, liabilities, capital and expense column.

- Show your working

Failure to follow instruction will result in deduction of grade points.

Transactions incurred during the fiscal year started from January 1st, 20Y1 to December 31st, 20Y1:

a) Barilla borrowed $2,000,000 from the local bank on October 1^st, 20Y1 (expected repayment by 2/1/20Y3). The annual interest rate is 6%. Interest are due for payment at every six months. Record the transactions for accrued interest on December 31^st, 20Y1 in the template. Show your working.

b) Barilla issued 85,000 shares at $7.20 per share. Show your working.

c) Bought inventory for resale at a cost of $4.8 million on account.

d) Inventory costing $1.2 million are sold for $3 million on account.

e) Incurred $15,800 in salaries in the last week of December 20Y1, which will be paid in the first week of January 20Y2 (i.e., in the next fiscal year).

f) Barilla estimates that 2% of the sales on account of $3 million mentioned in transaction (d) will not be collected. Show your working.

g) Barilla writes off $25,000 of uncollectible accounts receivable.

h) Barilla purchase an equipment for $1,500,000 on September 1^st, 20Y1. The useful life of the equipment is 20 years after which, it would be sold at an estimated price of $300,000. Record depreciation using straight line method at the end of the fiscal year (i.e., on December 31^st, 20Y1). Show your working.

i) Barilla recorded $3,000,000 sales during the fiscal year 20Y1 and estimated a warranty cost of 1.5% of the total sales for the year. At the beginning of the Barillas balance sheet included a warranty payable of $105,000 and at the end of the year the warranty payable balance was $82,000. Record the warranty expense and warranty paid in 20Y1 in the template.

j) Barilla pays 12 months insurance $4,800 in advance for equipment on July 1^st, 20Y1. Record this transaction. In addition, provide the required adjustment entry at the end of the fiscal year (i.e., on December 31, 20Y1) to recognize insurance expense related to the fiscal year ended at December 31, 20Y1. Show your working.