Question
Use T-accounts to record the 4 months of transactions noted below for this new start-up company . Record all entries affecting the income statement into
Use T-accounts to record the 4 months of transactions noted below for this new start-up company. Record all entries affecting the income statement into Equity since there are no separate T-accounts set up for the individual income statement accounts. Once all transactions have been posted, populate the net ending balance for each account for the accounts listed below
Month 1:
- $2,000,000 sale of stock occurs with all cash received by the company
- $3,000,000 bank loan received from the companys bank at the end of the month interest will start accruing next month (interest rate is 1% per month). Principal and interest cash payments will be made in a lump-sum payment at the end of the loan period.
- Factory is leased at the beginning of the month and prepaid for the entire year up-front at a cost of $720,000. The first month of lease expense is expensed to the income statement now.
- $2,400,000 investment in factory equipment is made. Total purchase price is payable in 30 days. Equipment will be depreciated on a straight line basis over 10 years. First month of depreciation expense is recorded now.
- Business insurance with coverage for the upcoming year is purchased at the beginning of the month at a cost of $360,000. The policy is prepaid for at the time of purchase. The first month of insurance expense is charged to the income statement now.
- $800,000 of inventory is received and will be paid to the suppliers in 30 days.
Month 2:
- $550,000 in sales are recorded on 30-day terms. The cost of the product sold is $500,000.
- Payment for factory equipment purchased in month 1 is made.
- Payment for inventory purchased in month 1 is made.
- Additional inventory valued at $500,000 is made. The supplier requires a 50% down payment at the time of inventory receipt with the remaining 50% due within 30 days.
- A bad debt reserve of $20,000 is created/recorded since some of the amounts in accounts receivable will no longer be collectible.
- 2nd month of depreciation expense is recorded.
- 2nd month of prepaid insurance expense is recorded.
- 2nd month of prepaid lease expense is recorded.
- The first month of interest expense related to the bank loan received during month 1 is accrued.
Month 3:
- $800,000 is sold to customers on 30-day terms. The cost of the product sold is $800,000.
- 3rd month of depreciation expense is recorded.
- 3rd month of prepaid insurance expense is recorded.
- 3rd month of prepaid lease expense is recorded.
- Payment for inventory purchased in month 2 is made. An additional $300,000 of inventory is purchased from the same supplier with the supplier requiring a 50% down payment at the time of inventory receipt and the remaining 50% due within 30 days.
- An additional bad debt reserve of $25,000 is created/recorded since additional outstanding accounts receivables have been determined to no longer be collectible.
- Payment for 90% of the receivables generated during month 2 is received.
- The second month of interest expense related to the bank loan received during month 1 is accrued.
Month 4:
- 4th month of depreciation expense is recorded.
- 4th month of prepaid insurance expense is recorded.
- 4th month of prepaid lease expense is recorded.
- $600,000 is sold to customers. The cost of the product sold is $400,000. 50% of the sales are paid for at time of delivery to customer with the remainder due within 30 days.
- Payment for inventory purchased on terms in month 3 is made. An additional $200,000 of inventory is purchased from the same supplier with payment due within 30 days.
- $25,000 of inventory has been discovered to be obsolete with no market value whatsoever. The entire amount is scrapped and written off during this month.
- Payment for 5% of the receivables generated during month 2 and 90% of the receivables generated during month 3 is received.
- The third month of interest expense related to the bank loan received during month 1 is accrued.
- A $20,000 dividend is paid during month 4 to shareholders.
Answers:
Note: A T-account table is provided for you to use to answer this question in Blackboard. After working through the T-accounts, the net balances for each of the Balance Sheet accounts listed below must be populated/answered:
Cash:
Net Receivables:
Inventory:
Prepaid Expenses:
Property, Plant, & Equipment:
Total Assets:
Accounts Payable:
Debt:
Stockholders' Equity:
Total Liabilities & Stockholders' Equity:
,,00 Cash Ho, o0o Prepaid Expenses Receivables Inventory 000. 1-2 1-3 1-4 1-5 1-6 3,000,00D o,oocO 300, 0 00o 330, Dab 550,000 60,600 0,600 2-2 2-4 2-5 2-6 2-7 MIL- unt Working Papers for Student Use Stockholders' Equity Debt Payables PP&E Z, 000,0oo 3, 000,ooo 1-2 1-3 1-4 1-5 1-6 2,3g0,ood 30 0o0 8oo,000 2-2 2-4 2-5 2-6 2-7 2-8 2-9Step by Step Solution
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