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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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

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.