Problem 5-31A (Static) Comprehensive accounting cycle problem (uses percent of revenue allowance method) LO 5-1, 5-4, 5-5 The following list of accounts was drawn for Tile, Etc., Inc. on December 31, Year 1, after the closing entries were posted: Account Title Cash $110,000 Accounts receivable 125,000 Allowance for doubtful accounts 18,000 Inventory 425,000 Accounts payable 95,000 Common stock 450,000 Retained earnings 97,000 Tile, Etc. had the following transactions in Year 2: 1. Purchased merchandise on account for $580,000. 2. Sold merchandise that cost $420,000 for $890,000 on account. 3. Sold for $245,000 cash merchandise that had cost $160,000. 4. Sold merchandise for $190,000 to credit card customers. The merchandise had cost $96,000. The credit card company charges a 4 percent fee. 5. Collected $620,000 cash from accounts receivable. 6. Paid $610,000 cash on accounts payable. 7. Paid $145,000 cash for selling and administrative expenses. 8. Collected cash for the full amount due from the credit card company (see item 4). 9. Loaned $60,000 to J. Parks. The note had an 8 percent interest rate and a one-year term to maturity. 10. Wrote off $7,500 of accounts as uncollectible. 11. Made the following adjusting entries: (a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account. (b) Recorded seven months of accrued interest on the note at December 31, Year 2 (see item 9). Required a. Organize the transaction data in accounts under an accounting equation. b. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for Year 2 TILE, ETC., INC. Income Statement For the Year Ended December 31, Year 2 Cost of goods sold X $ 1,325,000 Operating expenses Selling and administrative expense Credit card expense Uncollectible accounts expense $ 145,000 7,600 8.900 161,500 487.500 Total operating expenses Operating income Add: Non-operating items Interest revenue 20,000 X TILE, ETC, INC. Horizontal Statements Model = Liabilities + Assets Event NRV Accounts Receivable Merchandise Inventory Cash Notes Receivable Interest Receivable Accounts Payable Equity Common Retained Stock Earnings Accounting Titles for Retained Earnings Bal. 1. ++++ ++++ !!!!!! 2a. + 2b. . . + + + + + 3b. 4a. 4a. 4b. + + 5. 6. 7. 8. 9. + +++ 10. 11a. 11b. Bal 0 0 + o + 0 01 0 TILE, ETC., INC. Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Beginning common stock $ 0 Ending common stock Beginning retained earnings Ending retained earnings Total stockholders' equity Olo $ 342,400 TILE, ETC., INC. Balance Sheet As of December 31, Year 2 Assets Cash Accounts receivable s Less: Allowance for doubtful accounts Merchandise inventory Notes receivable Interest receivable $ 227,500 $ (19,400) 208,100 489,000 x 60,000 2,000 1,101,500 Total assets Liabilities Accounts payable $ 65,000 65,000 S Total liabilities Stockholders' equity Common stock Retained earnings Notes payable Total stockholders' equity Total liabilities and stockholders' equity x 450,000 97,000 X 489,500 1,036,500 $ 1,101,500 TILE, ETC., INC. Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flows from operating activities: $ 0 Net cash flow from operating activities Cash flows from investing activities: 0 Net cash flow from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $ 0
