Fundamental Financial Accounting Concepts, 9th Edition
Fundamental Financial Accounting Concepts, 9th Edition
9th Edition
ISBN: 9780078025907
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 13AE

a)

To determine

Prepare the journal entries for the given transactions.

a)

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Prepare the journal entries for the given transactions.

EventAccount Titles and explanation

Post

 ref.

Debit

$

Credit

$

1.Cash50,000
Common Stock50,000
(To record the issuance of common stock)
2.Merchandise Inventory180,000
Accounts Payable180,000
(To record purchase of inventory on account )
3a.Cash262,500
Sales Revenue250,000
Sales Tax Payable ($250,000×5%)12,500
(To record sales revenue)
3b.Cost of Goods Sold140,000
Merchandise Inventory140,000
(To record cost of goods sold )
4.Cash50,000
Notes Payable50,000
(To record borrowings from bank )
5.Accounts Payable180,000
Cash180,000
(To record payment of cash to creditors)
6.Sales Tax Payable ($190,000×5%)9,500
Cash9,500
(To record payment of sales tax )
7.Salaries Expense46,000
Employee Income Tax Payable5,300
FICA – Social Security Tax Payable2,760
FICA – Medicare Tax Payable690
Cash37,250
(To record salaries expense)
8.Warranties Payable5,800
Cash5,800
(To record the payment to warranty repairs)
9.Operating Expenses36,000
Cash36,000
(To record operating expenses)
10.Dividends2,000
Cash2,000
(To record payment of dividends )
11.Warranty Expense ($250,000×3%)7,500
Warranties Payable7,500
(To record estimated warranty expense )
12.Interest Expense ($50,000×7%×[10÷12])2,917
Interest Payable2,917
(To record interest expense )
13.Payroll Tax Expense (1)3,870
FICA - Social Security Tax Payable2,760
FICA – Medicare Tax Payable690
Federal Unemployment Tax Payable42
State Unemployment Tax Payable378
(To record pay roll expense)

Table (1)

Working notes:

Calculate the pay roll tax expense.

Amount ($)
FICA - Social Security Tax Payable$46,000×6%2,760
FICA – Medicare Tax Payable$46,000×1.5%690
Federal Unemployment Tax Payable$7,000×0.6%42
State Unemployment Tax Payable$7,000×5.4%378
Total payroll tax expense3,870

(1)

Table (2)

b)

To determine

Post the transactions to T-accounts.

b)

Expert Solution
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Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Post the transactions to T-accounts.

Cash
Beginning Balance0
1.50,0005.180,000
3a.262,5006.9,500
4.50,0007.37,250
8.5,800
9.36,000
10.2,000
Ending Balance91,950
Merchandise inventory
Beginning Balance03b.140,000
2.180,0008. Uncollectible accounts expense920
Ending Balance40,000
Accounts payable
5.180,0002.180,000
Ending Balance0
Employee income tax payable
7.5,300
Ending Balance5,300
FICA-Social Security tax payable
7.2,760
13.2,760
Ending Balance5,520
FICA-Medicare tax payable
7.690
13.690
Ending Balance1,380
Federal Unemployment tax payable
1342
Ending Balance42
State Unemployment tax payable
13378
Ending Balance378
Sales tax payable
69,5003a.12,500
Ending Balance3,000
Warranty payable
85,800117,500
Ending Balance1,700
Interest payable
122,917
Ending Balance2,917
Notes payable
4.50,000
Ending Balance50,000
Common stock
1.50,000
Ending Balance50,000
Dividends
10.2,000
Ending Balance2,000
Sales revenue
3a.250,000
Ending Balance250,000
Cost of goods sold
3b.140,000
Ending Balance140,000
Operating expense
9.36,000
Ending Balance36,000
Payroll tax expense
13.3,870
Ending Balance3,870
Salaries expense
7.46,000
Ending Balance46,000
Warranty expense
11.7,500
Ending Balance7,500
Interest expense
12.2,917
Ending Balance2,917

c)

To determine

Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows.

c)

Expert Solution
Check Mark

Explanation of Solution

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Prepare the income statement.

Company P
Income statement
For the Year ended December 31, 2016
ParticularsAmount ($)Amount ($)
Sales Revenue$250,000
Cost of Goods Sold(140,000)
Gross Margin110,000
Expenses:
Operating Expenses$36,000
Payroll Tax Expense3,870
Salaries Expenses46,000
Warranty Expense7,500
Total Operating Expenses(93,370)
Operating Income16,630
Interest Expense(2,917)
Net Income$13,713

Table (3)

Statement of stockholder's equity:

This statement reports the beginning stockholder's equity and all the changes which led to ending stockholder's equity. Additional capital, net income from income statement is added to and dividends are deducted from beginning stockholder's equity to arrive at the end result, closing balance of stockholder's equity.

Prepare the statement of changes in stockholders’ equity.

Company P
Statement of changes in stockholders’ equity
For the Year ended December 31, 2016
ParticularsAmount ($)Amount ($)
Beginning Common Stock$0
Add: Common Stock Issued50,000
Ending Common Stock$50,000
Beginning Retained Earnings0
Add: Net Income$13,713
Less: Dividends(2,000)
Ending Retained Earnings11,713
Total Stockholders’ Equity$61,713

Table (4)

Balance Sheet:

Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the balance sheet.

Company P
Balance sheet
As on December 31, 2016
Particulars

Amount

($)

Amount ($)
Assets
Cash$  91,950
Merchandise Inventory40,000
Total Assets$131,950
Liabilities and Stockholders’ Equity
Liabilities
Employee Income Tax Payable$5,300
FICA Tax – Social Security Tax Payable5,520
FICA Tax – Medicare Tax Payable1,380
Federal Unemployment Tax Payable42
State Unemployment Tax Payable378
Sales Tax Payable3,000
Warranties Payable1,700
Interest Payable2,917
Notes Payable50,000
Total Liabilities70,237
Stockholders’ Equity
Common Stock$50,000
Retained Earnings11,713
Total Stockholders’ Equity61,713
Total Liabilities and Stockholders’ Equity$131,950

Table (5)

Statement of cash flows:

The financial statement that shows the changes in cash flows from operating, investing, and financing activities is referred to as statement of cash flows.

Prepare statement of cash flows.

Company P
Statement of changes in stockholders’ equity
For the Year ended December 31, 2016
ParticularsAmount ($)Amount ($)
Cash Flows From Operating Activities:
Collection from Customers$250,000
Collection of Sales Tax12,500
Payment to accounts payable (Purchase Inventory)(180,000)
Expenses paid (2)(79,050)
Payment of Sales Tax(9,500)
Net Cash Flow from Operating Activities($6,050)
Cash Flows From Investing Activities0
Cash Flows From Financing Activities:
Stock Issue$ 50,000
Loan50,000
Dividends paid(2,000)
Net Cash Flow from Financing Activities 98,000
Net Change in Cash91,950
Add: Beginning Cash Balance0
Ending Cash Balance$91,950

Table (6)

Working note:

Calculate the cash paid for expenses:

Salaries paid$37,250
Warranties payable$5,800
Operating expenses paid$36,000
Cash paid for expense$79,050

(2)

Table (7)

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Chapter 9 Solutions

Fundamental Financial Accounting Concepts, 9th Edition

Ch. 9 - Prob. 11QCh. 9 - Prob. 12QCh. 9 - Prob. 13QCh. 9 - Prob. 14QCh. 9 - Prob. 15QCh. 9 - Prob. 16QCh. 9 - Prob. 17QCh. 9 - Prob. 18QCh. 9 - Prob. 19QCh. 9 - Prob. 20QCh. 9 - Prob. 21QCh. 9 - Prob. 22QCh. 9 - Prob. 23QCh. 9 - Prob. 24QCh. 9 - Prob. 25QCh. 9 - Prob. 26QCh. 9 - Prob. 27QCh. 9 - Prob. 28QCh. 9 - Prob. 29QCh. 9 - Prob. 30QCh. 9 - Prob. 31QCh. 9 - Prob. 32QCh. 9 - Prob. 33QCh. 9 - Prob. 34QCh. 9 - Prob. 35QCh. 9 - Prob. 1AECh. 9 - Prob. 2AECh. 9 - Prob. 3AECh. 9 - Prob. 4AECh. 9 - Prob. 5AECh. 9 - Prob. 6AECh. 9 - Prob. 7AECh. 9 - Prob. 8AECh. 9 - Prob. 9AECh. 9 - Prob. 10AECh. 9 - Prob. 11AECh. 9 - Prob. 12AECh. 9 - Prob. 13AECh. 9 - Prob. 14AECh. 9 - Prob. 15AECh. 9 - Prob. 16AECh. 9 - Prob. 17AECh. 9 - Prob. 18AECh. 9 - Prob. 19APCh. 9 - Prob. 20APCh. 9 - Prob. 21APCh. 9 - Prob. 22APCh. 9 - Prob. 23APCh. 9 - Prob. 24APCh. 9 - Prob. 25APCh. 9 - Prob. 26APCh. 9 - Prob. 27APCh. 9 - Prob. 1BECh. 9 - Prob. 2BECh. 9 - Prob. 3BECh. 9 - Prob. 4BECh. 9 - Prob. 5BECh. 9 - Prob. 6BECh. 9 - Prob. 7BECh. 9 - Prob. 8BECh. 9 - Prob. 9BECh. 9 - Prob. 10BECh. 9 - Prob. 11BECh. 9 - Prob. 12BECh. 9 - Prob. 13BECh. 9 - Prob. 14BECh. 9 - Prob. 15BECh. 9 - Prob. 16BECh. 9 - Prob. 17BECh. 9 - Prob. 18BECh. 9 - Prob. 19BPCh. 9 - Prob. 20BPCh. 9 - Prob. 21BPCh. 9 - Prob. 22BPCh. 9 - Prob. 23BPCh. 9 - Prob. 24BPCh. 9 - Prob. 25BPCh. 9 - Prob. 26BPCh. 9 - Prob. 27BPCh. 9 - Prob. 1ATCCh. 9 - Prob. 2ATCCh. 9 - Prob. 3ATCCh. 9 - Prob. 4ATCCh. 9 - Prob. 5ATCCh. 9 - Prob. 6ATCCh. 9 - Prob. 7ATCCh. 9 - Prob. 8ATCCh. 9 - Prob. 9ATCCh. 9 - Prob. 10ATCCh. 9 - Prob. 1CP
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