FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
The following transactions apply to Walnut Enterprises for Year 1, its first year of operations:
- Received $50,000 cash from the issue of a short-term note with a 6 percent interest rate and a one-year maturity. The note was made on April 1, Year 1.
- Received $130,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
- Paid $62,000 cash for other operating expenses during the year.
- Paid the sales tax due on $110,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until Year 2.
- Recognized the accrued interest at December 31, Year 1.
The following transactions apply to Walnut Enterprises for Year 2:
- Paid the balance of the sales tax due for Year 1.
- Received $201,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
- Repaid the principal of the note and applicable interest on April 1, Year 2.
- Paid $102,500 of other operating expenses during the year.
- Paid the sales tax due on $185,000 of the service revenue. The sales tax on the balance of the revenue is not due until Year 3.
- a. Organize the transaction data in accounts under an
accounting equation. - b-1. Prepare an income statement for Year 1 and Year 2.
Expert Solution
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Step 1
Accounting Equation:
The equation that proves the double-entry accounting system by showing equal debits and credits is an accounting equation. The balance sheet follows the accounting equation.
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