Test Corp is a start-up company that specializes in wooden toys. You have been hired to prepare the financial statements of the company (Test Corp closes its books once a year on December 31). The CEO has provided you with the information below. Further, you are told that Test Corp manufactures one type of toy (Type A) and buys to resell another type (Types B). The tax rate is 25%.

Instructions.

1. Prepare the journal entries associated with the transactions (you can use either the journal entry format or T-accounts). You can omit the dates and the explanations.
2. Prepare the adjusting entries.

3. Prepare the closing entry (or entries)

4. Prepare the balance sheet and the income statement.

Events.

1. On January 1, Test Corp issued shares of its stock for $400,000 cash.

2. On April 1, Test Corp borrowed $100,000 from a bank at 6% per year. 10% of the principal and the yearly interest are due on April 1 of every year (starting next year).

3. On May 1, Test Corp purchased a one-year renters insurance policy for $2,400.

4. On July 1, Test Corp purchased a computer (to be used by the accountant) for $14,000. The equipment carries a salvage value of $2,000 and a ten-year useful life. The purchase was paid in cash.

5. On July 1, Test Corp invested $10,000 to buy a brand name (cash).

6. On August 1, Test Corp paid $1,500 for a help wanted advertisement, which ran in the Georgetown University student-run newspaper the same day.

7. On August 17, Test Corp bought $500 worth of wood and paid in cash.

8. On August 25, Test Corp bought 250 widgets Type B for $25,000 on account.

9. On August 31, Test Corp received an order from a customer for 60 widgets Type B (payment on delivery). The sales price was $1,000 per widget.

10. On October 15, Test Corp delivered the 50 Type B widgets and collected $5,000. The remainder will be paid in January of next year.

11. On November 7, Test Corp collected cash for $3,000 of the widgets Type B sold on account.

The balance of the following accounts are:

Cash

Inventories

Accounts payable

Retained Earnings

Net income

Use the dollar amounts but omit the $ sign (i.e., 1,234 if the answer is $1,234 )

The solution can be found here: