Question:

Problem 16-4

Financial Accounting Review Problem

The Gomez Company uses perpetual inventory procedure. Given below is the balance sheet for the Gomez Company as of December 31, 2018:

GOMEZ COMPANY

Balance Sheet

12/31/2018

Assets

Current Assets:

GOMEZ COMPANY

Balance Sheet

12/31/2018

Assets

Current Assets:

Cash .$30,000

Accounts Receivable70,000

Inventory100,000

Prepaid Expenses10,000

$210,000

Property, Plant, and Equipment:

Land$30,000

Buildings and Equipment (less accumulated depreciation of $80,000)

160,000190,000

Total Assets$400,000

Liabilities and Stockholder's Equity

Current Liabilities:

Accounts Payable$40,000

Income Taxes Payable30,000

Accrued Expenses Payable+ 15,000

$85,000

Long-Term Liabilities:

Bonds payable, 9% due 2025 .+ 100,000

Total Liabilities$185,000

Stockholder's Equity:

Capital stock$150,000

($20 par value, 7,500 shares outstanding)

Retained earnings .65,000

Total Equity$215,000

Total Liabilities and Stockholder's Equity$400,000

The summarized transactions of the Gomez Company for 2019 are below:

a.Sales on account, $520,000.

b.Purchases of merchandise on account, $250,000. (Debit Inventory account)

c.Cost of goods sold for the year, $260,000.

d.Collections from customers on account, $510,000.

e.Paid vendors on account, $240,000.

f.Expenses prepaid during year, $8,000. Of the prepaid expenses, $11,000 became miscellaneous expenses during the year.

g.Bond interest expense paid in cash, $9,000.

h.Payroll expenses accrued during year, $150,000.

i.Paid accrued operating expenses, $155,000.

j.Accrued income taxes paid, $30,000.

k.Depreciation expense, $30,000.

l.New equipment purchased for cash, $40,000.

m.Income taxes are to be accrued at a rate of 40 percent.

n. Dividends declared and paid, $5,000.

How do I work on part a, part b and part c with the information above?

Important Note: While the problem indicates that T-accounts should be used in recording the summary of transactions in this problem, more conventional ledger accounts have been prepared below in place of the unwieldy T-accounts mentioned in the problem.

My professor gave me this note but I still dont understand

a.

How do I prepare T-accounts for all balance sheet, income statement, and statement of retained earnings accounts and record the year's activities in them. Continue this process far enough so you can prepare parts (b) and (c).

b.

I need help preparing an income statement and a statement of retained earnings for the Gomez Company for the year ending December 31, 2019. (You may find that reviewing the Demonstration Problem for this chapter is helpful in preparing these statements.)

c.

I need help preparing balance sheet as of December 31, 2019.

My professor formatted the worksheet like so,

Part A

--------------------------------------- General Ledger-------------------------------------

Cash

Date Explanation Debit Credit Balance

Beginning Balance 30,000

Accounts Receivable

Date Explanation Debit Credit Balance

Beginning Balance 70000

Inventory

Date Explanation Debit Credit Balance

Beginning Balance 100,000

Prepaid Expenses

Date Explanation Debit Credit Balance

Beginning Balance 10,000

Land

Date Explanation Debit Credit Balance

Beginning Balance 30,000

Buildings and Equipment

Date Explanation Debit Credit Balance

Beginning Balance 240,000

Accumulated Depreciation -- Buildings and Equipment

Date Explanation Debit Credit Balance

Beginning Balance 80,000

Accounts Payable

Date Explanation Debit Credit Balance

Beginning Balance 40,000

Income Taxes Payable

Date Explanation Debit Credit Balance

Beginning Balance 30,000

Accrued Expenses Payable

Date Explanation Debit Credit Balance

Beginning Balance 15,000

Bonds Payable

Date Explanation Debit Credit Balance

Beginning Balance 100,000

Capital Stock

Date Explanation Debit Credit Balance

Beginning Balance 150,000

Retained Earnings

Date Explanation Debit Credit Balance

Beginning Balance 65,000

Sales

Date Explanation Debit Credit Balance

Cost of Goods Sold

Date Explanation Debit Credit Balance

Miscellaneous Expenses

Date Explanation Debit Credit Balance

Bond Interest Expense

Date Explanation Debit Credit Balance

Payroll Expense

Date Explanation Debit Credit Balance

Depreciation Expense

Date Explanation Debit Credit Balance

Income Tax Expense

Date Explanation Debit Credit Balance

Dividends

Date Explanation Debit Credit Balance

Part B

Gomez Company

Income Statement

For the Year Ending December 31, 2019

Gomez Company

Statement of Retained Earnings

For the Year Ending December 31, 2019

Part C Gomez Company

Balance Sheet

December 31, 2019