Question 3.P.1: The following facts apply to the ABC Company in the year 20X...
The following facts apply to the ABC Company in the year 20XX.
1. Stockholders invest $1,000,000.
2. The company buys land for $20,000 and a building for $380,000 in cash.
3. The company borrows $100,000 from the bank. The five-year note bears 14 percent interest per year.
4. The company purchases $300,000 of merchandise, pays for $200,000 of it, and reflects the remainder as an account payable.
5. Sales of $800,000 are made on account, and there is $50,000 of merchandise remaining at the end of the year. Wages and other expenses for the year are $370,000. Interest of $3,000 is paid on the bank debt. The income is $177,000.
6. Dividends of $100,000 are paid to stockholders.
7. Accounts receivable has an ending balance of $500,000.
Set up T-accounts and record the above transactions. Key all entries. Prepare a balance sheet as of December 31, 20XX, that reflects the foregoing transactions.
| Cash | |
| (1) 1,000,000 | (2) 20,000 |
| (3) 100,000 | (2) 380,000 |
| (7) 300,000 | (4) 200,000 |
| (5) 373,000 | |
| (6) 100,000 | |
| √ 327,000 | |
| 1,400,000 | 1,400,000 |
| √ 327,000 | |
| Merchandise | |
| (4) 300,000 | (5) 250,000 |
| √ 50,000 | |
| 300,000 | 300,000 |
| √ 50,000 | |
| Land | |
| (2) 20,000 | √ 20,000 |
| 20,000 | 200,000 |
| √ 20,000 | |
| Building | |
| (2) 380,000 | √ 380,000 |
| 380,000 | 380,000 |
| √ 380,000 | |
| Accounts Receivable | |
| (5) 800,000 | (7) 300,000 √ 500,000 |
| 800,000 | 800,000 |
| √ 500,000 | |
| Common Stock | |
| √ 1,000,000 | (1) 1,000,000 |
| 1,000,000 | 1,000,000 |
| √ 1,000,000 | |
| Retained Earnings | |
| (6) 100,000 √ 77,000 |
(5) 177,000 |
| 177,000 | 177,000 |
| √ 77,000 | |
| Accounts Payable | |
| √ 100,000 | (4) 100,000 |
| 100,000 | 100,000 |
| √ 100,000 | |
| Notes Payable | |
| √ 100,000 | (3) 100,000 |
| 100,000 | 100,000 |
| √ 100,000 | |
| The ABC Company Balance Sheet as of December 31, 20XX |
|||
| Assets | Liabilities and Stockholders’ Equity | ||
| Current Assets | Current Liabilities | ||
| Cash | $327,000 | Accounts Payable | $100,000 |
| Accounts Receivable | 500,000 | ||
| Merchandise | 50,000 | Long-Term Liabilities | |
| Notes Payable | 100,000 | ||
| Total Current Assets | $877,000 | Total Liabilities | $200,000 |
| Long-Lived Assets | Stockholders’ Equity | ||
| Land | 20,000 | Common Stock | 1,000,000 |
| Building | 380,000 | Retained Earnings | 77,000 |
| Total Assets | $1,277,000 | Total Liabilities and Stockholders’ Equity | $1,277,000 |