Fundamental Financial Accounting Concepts
Fundamental Financial Accounting Concepts
10th Edition
ISBN: 9781259918186
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 13BE

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.Cash40,000
Common Stock40,000
(To record the issuance of common stock)
2.Merchandise Inventory128,000
Accounts Payable128,000
(To record purchase of inventory on account )
3a.Cash210,000
Sales Revenue200,000
Sales Tax Payable ($200,000×5%)10,000
(To record sales revenue)
3b.Cost of Goods Sold110,000
Merchandise Inventory110,000
(To record cost of goods sold )
4.Cash40,000
Notes Payable40,000
(To record borrowings from bank )
5.Accounts Payable128,000
Cash128,000
(To record payment of cash to creditors)
6.Sales Tax Payable ($160,000×5%)8,000
Cash8,000
(To record payment of sales tax )
7.Salaries Expense45,000
Employee Income Tax Payable5,600
FICA – Social Security Tax Payable (1)2,700
FICA – Medicare Tax Payable (1)675
Cash36,025
(To record salaries expense)
8.Warranties Payable3,200
Cash3,200
(To record the payment to warranty repairs)
9.Operating Expenses24,000
Cash24,000
(To record operating expenses)
10.Dividends5,000
Cash5,000
(To record payment of dividends )
11.Warranty Expense ($200,000×3%)6,000
Warranties Payable6,000
(To record estimated warranty expense )
12.Interest Expense ($40,000×6%×[3÷12])600
Interest Payable600
(To record interest expense )
13.Payroll Tax Expense (1)3,795
FICA - Social Security Tax Payable2,700
FICA – Medicare Tax Payable675
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$45,000×6%2,700
FICA – Medicare Tax Payable$45,000×1.5%675
Federal Unemployment Tax Payable$7,000×0.6%42
State Unemployment Tax Payable$7,000×5.4%378
Total payroll tax expense3,795

…… (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
1.40,0005.128,000
3a.210,0006.8,000
4.40,0007.36,025
8.3,200
9.24,000
10.5,000
Ending Balance85,775
Merchandise inventory
Beginning Balance03b.110,000
2.128,000
Ending Balance18,000
Accounts payable
5.128,0002.128,000
Ending Balance0
Employee income tax payable
7.5,600
Ending Balance5,600
FICA-Social Security tax payable
7.2,700
13.2,700
Ending Balance5,400
FICA-Medicare tax payable
7.675
13.675
Ending Balance1,350
Federal Unemployment tax payable
1342
Ending Balance42
State Unemployment tax payable
13378
Ending Balance378
Sales tax payable
68,0003a.10,000
Ending Balance2,000
Warranty payable
83,200116,000
Ending Balance2,800
Interest payable
12600
Ending Balance600
Notes payable
4.40,000
Ending Balance40,000
Common stock
1.40,000
Ending Balance40,000
Dividends
10.5,000
Ending Balance5,000
Sales revenue
3a.200,000
Ending Balance200,000
Cost of goods sold
3b.110,000
Ending Balance110,000
Operating expense
9.24,000
Ending Balance24,000
Payroll tax expense
13.3,795
Ending Balance3,795
Salaries expense
7.45,000
Ending Balance45,000
Warranty expense
11.6,000
Ending Balance6,000
Interest expense
12.600
Ending Balance600

c)

To determine

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

c)

Expert Solution
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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 R
Income statement
For the Year ended December 31, Year 1
ParticularsAmount ($)Amount ($)
Sales Revenue$200,000
Cost of Goods Sold(110,000)
Gross Margin90,000
Expenses:
Operating Expenses$24,000
Payroll Tax Expense3,795
Salaries Expenses45,000
Warranty Expense6,000
Total Operating Expenses(78,795)
Operating Income11,205
Interest Expense(600)
Net Income$10,605

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 R
Statement of changes in stockholders’ equity
For the Year ended December 31, Year 1
ParticularsAmount ($)Amount ($)
Beginning Common Stock$0
Add: Common Stock Issued40,000
Ending Common Stock$40,000
Beginning Retained Earnings0
Add: Net Income$10,605
Less: Dividends(5,000)
Ending Retained Earnings5,605
Total Stockholders’ Equity$45,605

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 R
Balance sheet
As on December 31, Year 1
Particulars

Amount

($)

Amount ($)
Assets
Cash$  85,775
Merchandise Inventory18,000
Total Assets$103,775
Liabilities and Stockholders’ Equity
Liabilities
Employee Income Tax Payable$5,600
FICA Tax – Social Security Tax Payable5,400
FICA Tax – Medicare Tax Payable1,350
Federal Unemployment Tax Payable42
State Unemployment Tax Payable378
Sales Tax Payable2,000
Warranties Payable2,800
Interest Payable600
Notes Payable40,000
Total Liabilities58,170
Stockholders’ Equity
Common Stock$40,000
Retained Earnings5,605
Total Stockholders’ Equity45,605
Total Liabilities and Stockholders’ Equity$103,775

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 cash flows
For the Year ended December 31, Year 1
ParticularsAmount ($)Amount ($)
Cash Flows From Operating Activities:
Collection from Customers$200,000
Collection of Sales Tax10,000
Payment to accounts payable (Purchase Inventory)(128,000)
Expenses paid (2)(63,225)
Payment of Sales Tax(8,000)
Net Cash Flow from Operating Activities($10,775)
Cash Flows From Investing Activities0
Cash Flows From Financing Activities:
Stock Issue$ 40,000
Loan40,000
Dividends paid(5,000)
Net Cash Flow from Financing Activities 75,000
Net Change in Cash85,775
Add: Beginning Cash Balance0
Ending Cash Balance$85,775

Table (6)

Working note:

Calculate the cash paid for expenses:

Salaries paid$36,025
Warranties payable$3,200
Operating expenses paid$24,000
Cash paid for expense$63,225

…… (2)

Table (7)

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Chapter 9 Solutions

Fundamental Financial Accounting Concepts

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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